This invention relates generally to the field of electronic payroll and benefit systems, and in particular to various aspects of online systems designed to facilitate online payroll and benefits administration.
The processing of a company""s payroll involves many steps that are susceptible to automation. Although the advent of PC-based standalone payroll systems facilitated the widespread automation of certain of these steps for small as well as large businesses, there remains a significant xe2x80x9cmanual breakxe2x80x9d in the processxe2x80x94between functionality relating to the calculation of employee/contractor paychecks (including income derived from raw timesheet and salary data, as well as taxes and pre-tax and post-tax deductions) and functionality relating to the calculation and disbursement of employer tax liabilities (to federal, state and local tax authorities), as well as compliance with various associated reporting requirements and distribution of paychecks.
The latter functions typically are performed manually within a company or delegated to an outside payroll service. The convenience of a payroll service cannot be overestimated. Keeping track of the legal payment and reporting requirements across federal, state and local tax authorities, and complying with the many employment-related laws, is a complex task for which most companies are ill-suited. The process is not only difficult and time consuming, but often results in errors, which ultimately may cause the company to incur significant liability in the form of back payments and penalties, as well as substantial expenditures of time and money to determine the cause of and resolve such errors.
Moreover, it is inefficient for most companies to set up the infrastructure necessary to handle this task. A centralized payroll service can deploy this infrastructure once to implement employment-related laws and payment and reporting requirements to federal, state and local tax authorities for numerous companies on a nationwide, or even worldwide, basis. It can automate the disbursement of funds and the generation and, often even, transfer of information necessary to meet the various reporting requirements. The cost to a company of hiring an outside payroll service can be offset by the elimination of the need for certain part-time or full-time accounting personnel.
Yet, many small companies continue to handle the payroll process themselves, relying on standalone payroll systems to provide total control and flexibility with limited out-of-pocket cost. As a tradeoff for saving the cost of an outside payroll service, such companies simply accept the inconvenience of having to act as their own manual payroll service, often making mistakes, as noted above, by failing to comply with particular employment-related laws or missing payment or reporting deadlines to the various relevant tax authorities.
Examples of such standalone payroll systems include the payroll modules of the xe2x80x9cMAS 90 Accounting Systemxe2x80x9d from Sage Software, Inc. of Irvine, Calif. (www.sota.com), the xe2x80x9cAbraSuitexe2x80x9d human resources and payroll management software from Best Software, Inc. of Reston, Va. (www.bestsoftware.com), and the xe2x80x9cSolomon IVxe2x80x9d business management suite from Solomon Software Inc. of Findlay, Ohio (wwvw.solomon.com).
Although such systems are relatively full-featured and are designed to assist companies in acting as their own in-house payroll service (e.g., calculating employer tax liabilities), they require a significant amount of manual intervention in areas of a process that is susceptible to automation. They also require knowledgeable accounting personnel and dedicated computing infrastructure, such as database servers.
These systems do not, for example, enforce compliance with the many tax-related and employment-related laws and other regulations that span federal state and even local jurisdictions. As noted above, such a task is far better-suited to a centralized payroll service than an individual company or even the developer of a mass-marketed PC-based software product (which would have to be upgraded frequently to track all such relevant changes). Most payroll services (including centralized services), however, do not attempt to enforce or automate compliance. Rather, such services merely calculate taxes and mail tax payments and required reports to tax authorities.
Moreover, once the relevant calculations are performed, the company still must, in addition to printing and distributing paychecks, manually schedule and make the required payments to the relevant tax authorities at the appropriate time, in addition to meeting the various reporting requirements. These standalone payroll systems do not automate such tasks. It is therefore not surprising, for example, that Best Software, Inc. (identified above) also offers the xe2x80x9cAbra TaxFile Payroll Tax Filing Servicexe2x80x9d to complement the xe2x80x9cAbra Payrollxe2x80x9d module of its AbraSuite software, in order to guard against tax filing errors and provide employers with the benefits of AbraSuite""s electronic funds transfer infrastructure.
Some very small companies rely exclusively on an outside payroll service, performing only those calculations necessary to supply the payroll service with the summary data that it requires, and in the format that it specifies. As a tradeoff for saving the cost of certain part-time or full-time accounting personnel, such companies accept payroll service fees in order to gain the convenience of having the payroll service manage the entire process of calculating and distributing employee/contractor paychecks, calculating employer/employee tax liabilities and distributing the required payments and reports to the appropriate tax authorities.
Yet, with the convenience of a payroll service comes the loss of flexibility and control over the payroll process. The companies that rely on such services must manually calculate the components of the summary payroll data required by the payroll service, including gross income (hourly or salaried, along with any overtime, bonuses, commissions, etc.) and various medical and other benefits, as well as allocations among pre-tax and post-tax deductions. Such companies must also conform to the time deadlines imposed by the payroll service, or risk missing a payroll. Exceptions (which occur fairly frequently in any reasonably sized company) are difficult for a payroll service to manage. Even a change in direct deposit requirements may not be implemented by an outside payroll service for two or three pay periods from the time of the initial request. Finally, the company must manually extract (and perhaps translate) the summary data into the particular data format required by the payroll service, often making each payroll a special case.
Well-known payroll services from ADP (Automatic Data Processing, Inc.) of Roseland, N.J. (ww.adp.com), Paychex, Inc. of Rochester, N.Y. (www.paychex.com), and PayMaxx, Inc. of Franklin, Tenn. (www.paymaxx.com) all enable companies to outsource the calculations necessary to generate employee paychecks and employer/employee tax liabilities, and to make scheduled tax filings and payments to the relevant tax authorities. As noted above, however, companies must first generate the summary information for each pay period (including income, overtime, bonuses, commissions, pre-tax and post-tax deductions, etc.) and provide it to the payroll service in the specified format.
Larger companies in particular have attempted to get the xe2x80x9cbest of both worldsxe2x80x9d by adopting a hybrid approach, using a standalone payroll system to calculate payroll-related data, and then manually transferring summary payroll data to an outside payroll service. One problem with this approach, however, is that payroll services require summary data in a particular format, which is not necessarily compatible with the output generated by standalone payroll systems (which typically are designed to enable companies to act as their own in-house payroll service). As a result, companies must manually integrate these two incompatible systems.
For example, not only must a company make manual modifications to transfer this summary data to the payroll service in the appropriate format, but any subsequent changes made to the raw data (e.g., a timesheet adjustment, added bonus, etc.) necessitate repeating this process to regenerate the summary data. In many cases, to avoid missing a payroll, companies must move certain changes to the next payroll, requiring additional modifications to the payroll system data. In short, keeping these two different systems synchronized often requires numerous manual modifications.
Companies offering such hybrid systems, often with human resource information systems (xe2x80x9cHRISxe2x80x9d) as well as payroll functionality, include ProBusiness, Inc. (www.probusiness.com) and PeopleSoft, Inc. (www.peoplesoft.com), both of Pleasanton, Calif., and Payroll Online Corporation of Bellevue, Wash. (www.payrollonline.com).
Larger companies that rely on enterprise-level HRIS and payroll systems must perform a significant amount of manual processing to synchronize the output of their payroll systems with the data format expected by their outside payroll services. As noted above, there is a distinct xe2x80x9cmanual breakxe2x80x9d in between two relatively automated processes.
Moreover, standalone payroll systems, even if used in conjunction with an outside payroll service, are inherently difficult to maintain. They must be updated frequently to reflect constant changes not only in tax laws and tax tables, but in the various employment-related laws that span federal, state and local jurisdictions. Frequently distributing such changes on a mass-market basis is simply not practical, even via the Internet, particularly when the local databases maintained by such systems must, in effect, be synchronized with those of a company""s outside payroll service.
Recent trends toward outsourcing resource-intensive tasks such as HRIS and payroll management are gradually leading enterprise-level software vendors such as Oracle Corporation and PeopleSoft to offer xe2x80x9conline leasesxe2x80x9d of their enterprise-level applications via the Internet. See, for example, xe2x80x9cNet Lets Small Firms Run Faster Without an IT Teamxe2x80x9d (Lorna Fernandes, San Francisco Business Times, week of Feb. 15, 1999) and xe2x80x9cThe Perfect Hostxe2x80x9d (Jeffrey Zygmont, CFO Magazine, May 1999).
With the advent of the Internet and, in particular, the World Wide Web, payroll services have gradually attempted to migrate some of their functionality online, in an effort to reach a broader audience and to simplify communication with their customers. Similarly, standalone payroll system vendors are beginning to offer payroll-service fuctionality, often utilizing the Internet to facilitate the transfer of data.
Unfortunately, such systems do not adequately integrate payroll system functionality with that of a centralized payroll service. Companies still are forced to perform preliminary manual calculations to provide summary payroll data to an outside payroll service, or manually extract such summary data from a standalone payroll system.
Vendors seeking to integrate payroll service functionality with their existing standalone payroll systems still rely on PC-based client software that maintains a local database. As noted above, it is difficult to update such systems on a sufficiently frequent basis to enable them to enforce compliance with current employment-related laws. As a result, such systems leave this task to the employer, resulting in frequent errors that even a sophisticated payroll service may not detect. Moreover, synchronizing the data from the system""s local database with that of an outside payroll service (even from the same vendor) results in the xe2x80x9cmanual breakxe2x80x9d in the process referred to above, requiring additional personnel and other resources within both the employer and the system vendor.
Vendors seeking to integrate a company""s existing payroll system functionality with their outside payroll services face similar problems. These xe2x80x9cweb-based payroll servicesxe2x80x9d offer little more than a web-based form that enables companies to enter summary payroll data directly into a browser (as opposed to using a telephone or fax machine), and perhaps see summary reports for approval before submitting the payroll. They do not address the problems described above with respect to integrating payroll system functionality with an outside payroll service.
Examples of such xe2x80x9cintegratedxe2x80x9d products include xe2x80x9cEasyPayWinxe2x80x9d and xe2x80x9cEasyPayNetxe2x80x9d from ADP (www.adp.com), xe2x80x9cMilleniumxe2x80x9d and xe2x80x9cESN Extranetxe2x80x9d from Payroll Online Corporation (www.payrollonline.com), and xe2x80x9cVirtual Payrollxe2x80x9d from Virtual Payroll, Inc. of Margate, Fla. (www.virtualpayroll.com).
Existing payroll systems and payroll services, including those discussed above, also have not adequately integrated employee benefits into the payroll process, despite claims to the contrary. For example, certain medical benefits result in both pre-tax and post-tax deductions. Although existing payroll systems permit such deductions to be entered, they do not enable companies to set up custom policies pursuant to which the system will calculate automatically (for each pay period) the appropriate pre-tax and post-tax amounts for all employees/contractors. Moreover, existing payroll services do not typically handle employer disbursements to medical, life insurance and other benefit providers, requiring companies to manage such payments (and generate and transfer associated reports) themselves.
More generally, existing payroll systems and payroll services do not enforce compliance with the various employment-related and tax-related rules governing this process. For example, such systems and services would permit an employee to include a $1000/month paycheck deduction for a 401(k) plan on a pre-tax basis, despite the current $10,000 annual pre-tax deduction limit on such plans (which changes most years). Existing payroll systems and services also do not enable employees to designate miscellaneous payees for salary deduction payments, such as out-of-pocket medical expenses, mortgage payments, and child-care payments.
What is needed is an online payroll and benefits system that provides employers with the flexibility and control of an automated standalone payroll as well as the convenience of a seamlessly integrated outside payroll service.
The present invention addresses the above-described concerns by seamlessly integrating an automated, centralized back-end payroll service with a full-featured web-based payroll system. Both aspects of this tightly integrated system have access to the same database of raw information, which includes, for example, general profile information on the employer and each employee/contractor, employee/contractor timesheet, salary and hourly wage data, company overtime, medical, life insurance and other benefit policy data, as well as information on third-party providers and miscellaneous payees.
Full-featured payroll system functionality is implemented, in one embodiment, both on the server side and on the client side, using xe2x80x9cActiveXxe2x80x9d controls that provide employers and employees (to the extent security policies permit) with a robust user interface via a standard web browser. In this embodiment, a centralized database is maintained on the server side (though it could be embodied as separately synchronized client-side and server-side components) to provide the system""s back-end (server-side) payroll service functionality with constant access to the same raw data. The system user interfaces are driven by the data contained within the centralized database.
The system implements and enforces compliance with a wide variety of tax-related and employment-related rules across federal, state and local jurisdictions (relating, for example, to overtime pay, benefit limits, payment frequency, and scheduled reporting requirements, as well as various tax rules and tables). The system can automatically receive and implement electronic updates to these rules, modifying its own functionality to conform to these changes and ensure compliance with current example. Moreover, these rules can include employers"" own custom policies, e.g., an overtime policy that provides benefits beyond those required by law.
Full-featured payroll system functionality includes the automated collection of employee data (e.g., timesheets that can be entered manually or automatically via an interface with time clock devices) and the calculation of employee/contractor income, taxes, and pre-tax and post-tax deductions. The system automatically calculates overtime, imputed income, and paid-time-off benefits, and allocates the sharing of payments for other employee benefit programs between employers and employees, as well as enabling employers to set up custom policies, e.g., for overtime, 401(k) and medical xe2x80x9ccafeteriaxe2x80x9d plans.
In addition, the system enables employees to specify policies for payments to miscellaneous third-party payees, such as an automatic deduction for an employee""s mortgage payment. In fact, employees could elect to use the system as a centralized bill payment system for their personal bills. Employees can even be given the option of selecting among multiple medical, 401(k), life insurance and other benefit providers, with the system automatically implementing the appropriate benefit plan policies for each employee, e.g., affecting allocations among pre-tax and post-tax deduction amounts. Employers also can specify custom reports (in addition to those required by law), which the system will generate and transfer automatically to the appropriate party (employer, employee, benefit provider, etc.) at the specified reporting interval.
Employers can review and validate paychecks for each employee/contractor, modify virtually any of the raw data and immediately recalculate paychecks, and even print some or all paychecks locally, submitting the remainder of the payroll (with a single click of the mouse or push of a button) to the system""s automated back-end payroll service.
Once a payroll has been submitted, the system""s back-end payroll service functionality uses this same raw data to generate disbursement information for payments to employees/contractors, benefit providers, miscellaneous payees, and various tax authorities. These calculations remain subject to compliance with the same database of rules that was used to calculate employee paychecks.
The system applies these rules to determine the source, destination and scheduled timing for disbursement of funds and transfer of information (e.g., reports, tax filings, and associated payment information) among the various payers and payees, and then automatically effects such transfers (whether electronic or otherwise) at the appropriate times. For example, for each pay period, funds are transferred (typically electronically) from the employer""s account to that of the payroll service, from which paychecks are automatically transferred electronically, or printed and mailed (if not printed locally by the employer), to each employee/contractor. At the appropriate time (not necessarily corresponding with a pay period), funds are also transferred (as are any automatically generated reports) to the appropriate tax authorities, benefit providers and miscellaneous payees (e.g., lienholders, child care providers, etc.).
Various other features have been added (as described below) to provide employers and employees with additional flexibility and control over the payroll process, and to facilitate automated communication and integration of functionality not only between the company and its payroll service, but with miscellaneous payees, benefit providers and other third parties as well.